GE HealthCare Technologies Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Revenues of $5.1 billion increased 4% year-over-year organically. Orders grew 6% y-o-y, book-to-bill was 1.06x, and backlog stood at $21.2 billion. Adjusted EBIT margin was 14.8%, down 150 basis points y-o-y. Adjusted EPS was $1.07 per share, down 6% y-o-y (including ~$0.16 tariff impact). Free cash flow was $483 million in Q3.
• Innovation and R&D: Invested over $3 billion in R&D since 2022. AVS launched AI-powered systems with strong customer adoption. PCS has new products like a refreshed anesthesia delivery system and CareIntellect. Imaging has a new pipeline of products. RSNA to introduce significant new AI-enabled products.
• Commercial Execution: Secured multiple large system deals totaling nearly $0.5 billion in future revenue. Announced a 14-year Care Alliance with UC San Diego Health. Acquired icometrix to strengthen the Alzheimer's care portfolio with digital tools for detecting and quantifying high-risk side effects in Alzheimer's therapies.
• Tariff Mitigation: Mitigated approximately 50% of the 2025 gross exposure, on track to lower net tariff impact in 2026 based on currently enacted tariffs.

Segment Performance

• Imaging: Organic revenue up 4% y-o-y in Q3, driven by strong commercial execution in EMEA and the U.S. Segment EBIT margin declined 260 basis points y-o-y largely due to tariff pressures, but sequentially, both revenue and margin increased. Focus on disciplined price management, operational efficiency, and platforming improvements.
• Advanced Visualization Solutions (AVS): Organic revenue up 6% y-o-y with strong performance in the U.S. and demand for new products. Segment EBIT margin increased 180 basis points y-o-y due to volume growth and cost productivity, marking the fourth consecutive quarter of year-over-year sales and margin growth. Examples include the Vivid Pioneer launch and AI-enabled products contributing to revenue growth and margin expansion.
• Patient Care Solutions (PCS): Orders growth was healthy in Q3, but organic revenue was down 7% y-o-y primarily due to a product hold. The hold has been resolved, and shipments for impacted products have resumed, positioning for a sequential sales step-up in Q4. Segment EBIT margin declined 680 basis points y-o-y due to the product hold, unfavorable product mix, and tariffs. With expected volume improvements and productivity actions, a meaningful sequential improvement in EBIT margin is anticipated in Q4. New leadership is working to accelerate growth, drive variable cost productivity, and optimize the cost structure.
• Pharmaceutical Diagnostics: Sales grew 10% organically y-o-y, driven by solid performance in contrast media and radiopharmaceutical portfolios. EBIT grew 14%, but margins declined 150 basis points y-o-y due to planned investments in NPIs such as Flyrcado and the Nihon Medi-Physics acquisition.

Guidance

• Full-year organic revenue growth expected ~3%, with FX expected to be a 50 basis point tailwind to revenue.
• Adjusted EBIT margin for the full year unchanged in the range of 15.2% to 15.4%.
• Adjusted EPS guidance raised to between $4.51 and $4.63 per share for the full year.
• Adjusted effective tax rate expected in the range of 20% to 21% for the full year.
• Expect to deliver free cash flow of at least $1.4 billion for the full year, including tariff payments.

Risks

• Tariffs: Impacting margins and EPS, though efforts are underway to mitigate net tariff impact in 2026.
• Product Hold in PCS: Affected revenue and margin in Q3, though hold has been resolved but remains a factor.
• Global Market Dynamics: Competitive pressures and evolving market conditions in regions like China could impact growth.

Question and Answer

• Q: Can you provide additional color on China tenders and growth outlook?

A: Tenders improving in China, recovery ongoing. New leader in China focused on market access and clinical selling, seeing positive progress in ultrasound and imaging.

• Q: How does China's recovery impact the mid-single-digit revenue growth target?

A: China flat/stable market still allows achievement of mid-single-digit growth targets.

• Q: Why did Q3 show strength and how does it align with Q4 guidance?

A: Q3 strong due to AVS innovation and EMEA/US performance; Q4 expected 3%-4% growth, aligned with historic step-up from Q3 to Q4.

• Q: Discuss Flyrcado ramp and why it's slower in 2025.

A: Slower ramp in 2025 to ensure customer experience; focus on supply chain yield and customer workflow, expecting ramp in 2026 and beyond.

• Q: Timing for Photon Counting launch?

A: On track, to be discussed in detail at RSNA.

• Q: How is PCS expected to recover?

A: Product hold resolved, new leadership driving improvement; expect significant sequential improvement in EBIT margin in Q4.

• Q: AVS EP opportunity in ASC?

A: Integrated solutions, new reimbursement, and product integration driving growth in the ASC setting for electrophysiology.

• Q: Margin transition from R&D to COGS?

A: Products moving to commercialization shift R&D expenses to COGS, net neutral to adjusted EPS, with 12 material programs near commercialization.

• Q: Ultrasound competitive implications?

A: No immediate effect, AVS strong due to go-to-market execution and new product launches.

• Q: MUSE platform and cardiac termitary?

A: AliveCor integration, CareIntellect for departmental solutions, with more such solutions expected in 2026.

• Q: Flyrcado and PET backlog impact?

A: Flyrcado could drive $1 billion revenue, existing PET/CT base supports growth, with tailwinds from ACC guidelines.

• Q: Tariff mitigation outlook for 2026?

A: Expect less tariff impact in 2026 through supply chain structural changes, U.S. MCA certification, and selective pricing, expected to be a tailwind to earnings growth.